UNIT 2: Unemployment 2/4/16

Unemployment - Failure to use available resources, labor, to produce desired goods and services

The Labor Force includes those above 16 and able and willing to work. (Employed + Unemployed)

The Labor Force does not include:

• Military
• Students
• Retired 
• Disabled
• Stay at home people/ Home makers
• People in Mental Institutions
• People in Jail or Prison
• Those not looking for a job

Unemployment rate: 4-5% is considered "ideal" or as Full Employment, or the Natural Rate of Unemployment.

To Calculate Unemployment rate:

Unemployed
Labor Force       * 100

The 4 Types of Unemployment


Frictional + Structural = NRU

Full Employment = no cyclical unemployment, Cyclical unemployment is bad!

A GDP Gap is the amount that the actual GDP falls short of potential GDP.

Okun's Law states that for every 1% the actual unemployment rate exceeds the NRU the GDP gap is about 2%.

Rule of 70 is used to detemine how many years it takes for a value to double on a set rate.

70
Interest   =  # of years

Ex. If you put $20,000 in a bank, an it earns a yearly interest of 7%, how many years will it take for that amount to double?

70
7%        =    10 years

UNIT 2: GDP 2/2/16

Nominal Interest Rate: % increase in money paid for interest, Not adjusted for Inflation, but for anticipated inflation.

NI = Expected Inflation Rate + Inflation Premium (usually less than 10) 

Real Interest Rate= % increase in purchasing power in interest, adjusted for inflation, Unanticipated 

Inflation.


The Fisher Effect states that the real interest rate is equal to the nominal rate minus the expected rate of inflation.


RIR = NIR - Expected Inflation rate


COLA or Cost of Living Adjustment: Automatically raises wages to increase with inflation.

UNIT 2: GDP 2/1/16

Nominal GDP - Value of output provided in current prices, can increase year to year if output or prices increase. Not adjusted for inflation

Real GDP - value of output produced in constant prices or base year prices. Adjusted for inflation can increase from year to year only if out put increases.

To find Nominal GDP you multiply Price by Quantity in the same year
To find Real GDP you multiply Price from base year by Quantity of the new year

Increase in Economy = Real GDP

Increase in inflation = Nominal GDP

GDP deflator - price index to go from Nominal to Real GDP

The equation to get the GDP deflator is Nominal divided by Real GDP then multiplied by 100

Consumer Price Index - most commonly used to measure for inflation and measures cost of goods of a typical family

The equation is:

Cost of market bag of goods in year 2        *  100
Cost of market bag of goods in base year

The equation for Inflation is:

Price Index in year 2 - Price Index in year 1    * 100  
Price Index in year 1

Certain groups are hurt and helped by inflation. Those hurt are usually people who save, loan out, or people on a fixed income. Those helped are usually those who borrow, or debtors.

UNIT 2: GDP 1/29/16

There are two ways to calculate GDP: Expenditure and Income approach.
Expenditure is more reliable as the values cannot be easily falsified unlike the Income approach
To calculate GDP the expenditure way, you add:

1. Consumer Expenditures 
2. Gross Private Domestic Investments
3. Government Purchases
4. Net Exports (Exports - Imports)

To Calculate GDP the income way you add together:

1. WRIP (Wages, Rent, Interest, Proprietor's income)
2. Stat adjustments (Indirect business taxes, Depreciation(Consumption of Fixed Capital), and Net Foreign Factor Payments )

There are two ways to calculate National Income, you can add together;

1. Employees compensation (wages, SS, pension plans)
2. Rent (income for property owners)
3. Interest Income (loaners' income)
4. Corporate Profits 
5. Proprietors Income (income for partnerships) 

The second way would be to subtract stat adjustments from GDP.

In order to find Disposable National Income, you take National Income and subtract Personal Taxes and add Government Transfer Payments

Net Domestic Product = GDP - depreciation

Net National Product = GNP - depreciation

GNP = GDP - Net Foreign Factor Payment

You calculate if you have a budget deficit or surplus by adding Government Purchases and Government transfer payments and subtracting Government taxes and fee collection.
If you end up with a positive number, you have a budget deficit and if you have a negative number you have a budget surplus.

To calculate a trade surplus or deficit, you subtract exports by imports. If you end up with a negative number, you have a trade deficit and if you end up with a positive number, you have a trade surplus.

UNIT 2: GDP 1/26/16

GDP - the market value of all final goods and services, produced within a nation in a given year.

Not included in GDP: 

• Used or 2nd hand goods
• Purely financial transactions (stocks and bonds)
• Unreported business activity
• Illegal activity
• Non-market activity (volunteering)
• Transfer payments (public: SS welfare, private: scholarships)
• Intermediate goods (raw materials used to make final product) 

1/28/16

GDP is generally composed of 65% personal consumer expenditures, 17% gross private domestic investments(which includes new factory equipment/maintenance ), 20% government purchases, and -2 % net exports (Exports - Imports)

Also circular flow:

Resources sell resources(factors of production)  and buy products in the Factor market.
Firms sell products and buy resources in the Product market.'